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2015 (7) TMI 846 - AT - Income TaxDisallowance of write off of being forfeiture of surety given by the assessee on behalf of associate concern - CIT(A) allowed claim - Held that - CIT(A), though, held that the amount in question was earlier given as advance for purchase of machinery but has changed its character to that of guaranty/surety but has not given any finding as to how the amount even given as a guaranty for purchase of machinery would fall in the definition of revenue loss. The Ld. CIT(A) has simply observed that earlier the assessee had paid the amount as an advance with purchase of machinery but later on the same was converted as guaranty for purchase of machinery by M/s. Vinedale Ltd. and thereafter without giving any reasoning treated the same as revenue loss. The Ld. CIT(A) even has not considered that the amount of advance paid to M/s. Alfa Laval (India) Ltd. which was initially treated as advance on behalf of M/s. Vinedale Ltd. was only ₹ 81.30 lakhs. The said amount has never changed its character as a guaranty rather was advance for the purchase of machinery on behalf of M/s. Vinedale Ltd. The remaining amount was paid by the assessee for settlement of the accounts of M/s. Vinedale Ltd. which were on account of outstanding dues for the purchase of machinery by M/s. Vinedale Ltd. The assessee has paid the said amount on behalf of M/s. Vinedale Ltd. being its guarantor/surety which was not relating to any business or trading activity of the assessee in any manner. We therefore do not find any merit in the order of the Ld. CIT(A) and the same is therefore set aside. The action of the AO disallowing the said loss is confirmed. - Decided against assessee. Deduction on account of consumption of containers disallowed - Held that - CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. We, accordingly, restore this issue to the file of the Ld. CIT(A) to consider the claim of the assessee on merits and pass a reasoned order, irrespective of the returned loss/ income of the assessee. The Ld. CIT(A) will be at liberty to call the views/remand report of the AO on this issue and to decide the issue in accordance with law. - Decided in favour of assessee for statistical purposes. Disallowance under section 14A - Held that - Restore this issue also to the file of the Ld. CIT(A) for adjudication afresh. It is made clear that if the assessee had made no investments for earning of exempt income, no disallowance would be warranted under section 14A. The Ld. CIT(A) will also look into the other contentions raised by the assessee on this issue. Accordingly, this appeal of the assessee is allowed for statistical purposes.
Issues Involved:
1. Disallowance of write-off of Rs. 1.63 crores as business loss. 2. Deduction claim of Rs. 99,85,274 on account of consumption of containers. 3. Disallowance under section 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of write-off of Rs. 1.63 crores as business loss: The Revenue appealed against the CIT(A)'s decision to delete the disallowance of Rs. 1.63 crores, which was claimed by the assessee as a business loss due to the forfeiture of surety given on behalf of an associate concern. The assessee, engaged in beer manufacturing, had initially paid an advance for purchasing brewery equipment from Alfa Laval (India) Ltd. Some of this advance was later appropriated for a sister concern, M/s Vindale Distilleries Ltd., which faced financial difficulties. The assessee stood as guarantor for Vindale, and when Vindale defaulted, the assessee had to make good the payment, leading to a loss of Rs. 1.63 crores. The AO disallowed the deduction under Section 36(1)(vii) r.w.s. 36(2), but the CIT(A) allowed it under Sections 28 and 29. The Tribunal initially remanded the case back to CIT(A) for a detailed order. Upon reconsideration, CIT(A) allowed the deduction citing that the amount had changed character to a guaranty/surety and relied on the decision in CIT vs. Dempo and Company Limited. The Tribunal, however, disagreed, emphasizing that the primary purpose of the advance was for capital expenditure (purchase of machinery), and the loss incurred was a capital loss, not a business loss. The Tribunal noted that the clauses in the Memorandum of Association related to guarantees were enabling provisions, not main business objectives. The Tribunal concluded that the loss was not incidental to the business of the assessee and thus not allowable as a business loss under Sections 28 and 29. The Tribunal set aside the CIT(A)'s order, confirming the AO's disallowance. 2. Deduction claim of Rs. 99,85,274 on account of consumption of containers: The assessee's appeal for A.Y. 2006-07 included a ground for deduction of Rs. 99,85,274 on account of consumption of containers, which was not claimed in the return of income. The AO and CIT(A) rejected this claim, with CIT(A) stating that the assessment under Section 143(3) cannot be framed below the returned income. The Tribunal referred to the decision in Gujarat Gas Ltd. vs. JCIT, which held that the AO is not bound by the CBDT circular that restricts the assessed income to not be less than the returned income. The Tribunal also cited Pruthvi Brokers & Shareholders Pvt. Ltd., which clarified that appellate authorities can entertain claims not made before the AO. The Tribunal restored the issue to CIT(A) to consider the claim on merits, irrespective of the returned income. 3. Disallowance under section 14A of the Income Tax Act: The assessee contested the disallowance under Section 14A, arguing that Rule 8D, applied by CIT(A), was only applicable from A.Y. 2008-09 onwards. The assessee also claimed that no investments were made for earning exempt income during the year. The Tribunal noted that the CIT(A) did not consider these contentions and restored the issue for fresh adjudication. The Tribunal emphasized that if no investments were made for earning exempt income, no disallowance under Section 14A would be warranted. The CIT(A) was directed to re-examine the issue, considering the assessee's arguments. Conclusion: The Tribunal allowed the Revenue's appeal, confirming the disallowance of the Rs. 1.63 crores write-off as a capital loss, not a business loss. The assessee's appeal was allowed for statistical purposes, with directions to CIT(A) to re-evaluate the claims regarding the consumption of containers and disallowance under Section 14A. The Tribunal also noted the change in the assessee's name and PAN for A.Y. 2006-07, directing the AO to verify and use the correct PAN while giving effect to the order.
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